Dollar Little Moved Ahead Of Tuesday's ISM (page 2 of 2)

Attributed to the lack of interest were less than stellar reports overnight, as we approach the Bank of England meeting later this week. Released in the London hours, money supply figures continued to point to rising inflationary pressures in the economy.

Increasing at a 13.5 percent annualized clip, higher amounts of money are now chasing fewer goods, potentially boosting consumer price increases. As a result, the sentiment is likely stirring the prospect of higher rates in the near term future as the short sterling curve prices in a definitive 25 basis point rate hike by the fourth quarter of this year. Additionally boosting the possibility were the month's mortgage approvals.

Expected to increase by 117,000, the survey climbed by 120,000 in the month of June, continuing the uptrend witnessed over the last three months. With approvals on the up-and-up, likely underpinning housing demand, central bankers may have little to no reason to raise rates as residential demand remains stable amid inflationary concerns.

At this point, only timing remains to be the final piece to the puzzle. With three spots remaining to be filled, which is inevitable, the Monetary Policy Committee is likely to stand pat on rates until the seats are filled and economic data is completely overwhelming. This notion should add some bearish concern on the underlying in the near term, even as the likelihood of a rate hike underpins demand in the longer term.

Japanese Yen

The Japanese yen continued its gains against the US dollar, albeit incrementally, throughout the New York session as economic reports remained positive for the world's second largest economy. A focus in the overnight session, the industrial production survey reported higher productive activity in the month, rising 1.9 percent.

The figure improved upon the 1.3 percent decline seen in May and trumped the 1.3 percent consensus figure. With speculation on the overall economic condition remaining somewhat 50-50, the report bodes well for the underlying currency as a testament of further expansion potential. Additionally supportive were Yuan gains against the US dollar in the overnight. With the yen continuing its proxy status for the Chinese denomination, further speculation over the prospects of a near term revaluation effort are boosting a yen bias.

Once again testing new lows below the 7.98 figure, the Yuan is rising in value as policy makers are making a concerted effort to preserve the value of the local currency by calling for a slow down in foreign investment. However, the belief stands that with rising amounts of foreign money attempting to enter the economy and contracts trading at new lows, policy makers will ultimately relent and move for flexibility through a wider trading band in the near future. Coupled with the recently acquired bearishness towards the US dollar, the yen may very well have some room left to rise.